The recent crypto crash hit memecoins hard, culminating with a 9% drop in total market capitalization from Aug. 14 to Aug. 21. During the same period, Pepecoin (PEPE), Shiba Inu (SHIB) and ApeCoin (APE) saw a 25% decline. The big question is whether this trend will affect the wider market, signaling a broader bear market, or simply reflects lagging performance of memecoins.
Memecoins like Dogecoin (DOGE) burst onto the scene, driven by viral memes and community enthusiasm. However, their appeal faded due to a mix of factors. These coins rely on media hype and online communities for attention, yet they lack value beyond their meme origins. Their speculative nature leads to rapid price changes and volatility.
Furthermore, the memecoin market has become saturated with copycats, drawing focus and resources to more traditional cryptocurrencies.
Capital rotates as investors shift their attention to new trends
For traders, the mid-August crypto market crash was a stark reminder of memecoin volatility. Many of these coins emerged in the last six months, like PEPE and Milady Meme Coin (LADYS). This might push new entrants away and create a negative sentiment, potentially extending a bear market to the broader crypto landscape.
However, this underperformance is typical for memecoins, as seen in the past, like when APE, SHIB and PEPE lagged the total crypto market by 18% between June 5 and June 15.
These two instances don’t necessarily mean memecoins will always perform worse than the broader crypto market. They reflect a higher beta in the sector, where memecoins tend to exaggerate market movements. Despite this, it’s uncertain if excessive price drops are a backward-looking phenomenon or signal a market reversion.
Contrary to expectations, memecoins can also lag during bull markets. For instance, between March 13 and March 30, memecoins fell while the total crypto market cap gained 17.5%.
After looking at the two most recent instances of memecoin underperformance, it’s crucial to examine their aftermath. This entails determining whether the price drop hinted at a possible market bottom or if it merely signaled investors shifting their attention to other cryptocurrencies.
Despite the bullish evidence, external factors influence memecoin price action
Following the mid-June and late-March period when memecoins underperformed, the overall cryptocurrency market capitalization either remained steady or experienced notable gains in the subsequent weeks. Numerous factors could have influenced investor sentiment during these periods. For instance, the sentiment might have been influenced by BlackRock's application for a Bitcoin exchange-traded fund (ETF) on June 15.
Similarly, on March 31, Bitcoin options worth $4.2 billion expired. This event was seen as a potential catalyst for Bitcoin (BTC) to strengthen its $28,000 support level. This was due to a notable imbalance between call (buy) options and put (sell) instruments, with call options surpassing put options by $1.2 billion. This likely favored Bitcoin bulls and could have led them to utilize profits from the expiry to bolster the BTC price.
However, since neither of the last two sharp corrections in memecoins was succeeded by broader cryptocurrency market declines, the possibility of Bitcoin finding support around $26,000 remains a possibility. Nevertheless, as evident from the ETF and options expiry incidents, market trends and memecoin price action are primarily steered by news and events.
This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.